Short Term Trading Weekend Lounge: 2 - 4 Sept, page-243

Just on the topic of crashes but not specific to shorting.

Maybe not a crash as such but a fender bender.
I’m planning on keeping a significant amount of cash on the sidelines till after the FOMC meeting on the 20-21 September. After some interesting posts by GC and Orwell on the BT thread I looked further into the chance of an interest rate increase after the FOMC meeting. As the market is not pricing in the increase I can see it as a way to buy some quality stocks at lower prices as the market overreacts to the ‘surprise’ ala Brexit. Over the next couple of weeks I’ll find some targets I like and sit and wait. Probably look at some goldies. I could be completely wrong but there is no risk in waiting. The worst is I miss out on some trades over the next three weeks but I think it could be profitable if it comes to fruition. I don’t think interest rates going up is negative at all but I’ve seen that the market hates a surprise. Here’s some background for those interested. I think it’s relevant to STT as it’s a short term idea.

Bit of a cut and paste jobby with some interpretations by myself. Info taken from websites including; AFR weekend, CNBC, TradingEconomics & Bloomberg.

The U.S. NFP (non-farm payroll) report came out Friday evening and most have decided that the increase of 151,000 new jobs is too low for the U.S Federal Reserve to raise interest rates at its September 21 Federal Open Market Committee meeting. The softer than anticipated US employment report on Friday means an imminent rate hike would come as a surprise to markets. The economy added 151,000 jobs in August and the unemployment rate stayed unchanged at 4.9 percent. Economists had expected 180,000 jobs and an unemployment rate of 4.8 percent. Wage growth slowed to a disappointing gain of just 0.1 percent while some economists had expected 0.3 percent.

Fed fund future pricing by CME Group, the broadest measure of market bets on a September rate hike, slipped to 21% after the payroll report, from 24%. I forget the exact number but usually the Fed raises when market is predicting around a 70% chance. Hence shock if they do raise.

“If you wanted to move in September, you still want to move in September. If you wanted to wait, you still want to wait,” said Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro in Washington. Today’s report “may give marginally more ammunition to those guys who want to be more cautious,” he said.

On Thursday, Goldman economists pointed out the quirkiness of August reports. They said August payrolls have fallen short of consensus by about 49,000 since 2011, but were revised higher by an average 71,000 in later releases. Job additions in August are often initially measured inaccurately - due to people being away on summer vacation - and later revised up.

Wells Fargo and RBS also pointed to a calendar "quirk" in August that could have led to salaries being underestimated. The payroll survey, unusually, ended on August 13, before the 15th when bi-monthly pays are often deposited.

Average job gains stand at 232,000 for the past three months and 182,000 a month so far this year, well above the approximate 100,000 the Fed estimates is needed to keep steady the jobless rate, which was unchanged at 4.9 per cent.
The average workweek for all workers decreased to 34.3 hours in August from 34.4 in July, marking the first drop in six months.

Richmond Fed President Jeffrey Lacker, who dissented in favour of higher rates last year and warns of risks from delaying action for too long, said the report indicated that the labour market continued to tighten.
“I thought it was a fine report, perfectly close enough to expectations,” he told reporters after a speech Friday in Richmond. “I’d call it reasonably strong, given that it came in above a rate you would need to keep up with working-age population growth.” In his speech, Lacker said average monthly payroll gains this year were double the pace needed to prevent the unemployment rate from rising.

Non-Farm Payrolls in the United States averaged 123.13 thousand jobs from 1939 until 2016, reaching an all-time high of 1.1 Million in September of 1983 and a record low of 1.9 million job losses in September of 1945. Non-Farm Payrolls in the United States is reported by the U.S. Bureau of Labor Statistics.

After September the next FOMC meeting is in November and then December; both within the maelstrom of the US presidential election. The November FOMC meeting is a week before Election Day and the December meeting is a week before the Electoral College’s formal vote. If the Fed is worried about the initial reaction of an interest rate hike then September is clearly preferable to Nov & Dec. Also the next meeting after that is in January 2017, a week after the presidential inauguration. I can’t see them wanting to tick off the new president.

I found this chart interesting as the current period is the longest single run without a month containing job losses. If the FOMC meeting relies on jobs growth this chart shows it’s doing everything it needs to; over five years of monthly jobs growth.